It happens only in America.

As we saw the Americans grapple with issues of corporate governance (sub prime, hedge fund scams, bonuses….), we said to ourselves, aha… it happens only in America.

The scam in Satyam Computers has brought home the issues of fairly managed businesses. Only time will tell us if we will witness more of such revelations / confessions. But there is a serious issue already confronting us: can a management run a publicly owned company as a personal empire ? Think carefuly: you will find the best of families, running publicly owned companies, controlling them as if they were personal fiefdoms.

The Market:
End of the Trend
A sense of betrayal due to ‘confessions from Satyam’ caused a massive destruction of wealth in the stock market.

For two days, this blog has been suggesting that the Nifty is touching resistance levels, so profits should be taken. No one could have predicted today’s decline. But prediction was not required. If the Nifty was at resistance, and, you took profits, you were safe from any declines. Of course, you were deprived of additional gains if the market continued to go up, but that was a risk that seemed acceptable.

With the Nifty falling 250 points (intraday), the minor up trend has come to an end. The Intermediate trend changes to down if and when the Nifty closes below 2813. This has not happened yet.

How will the minor trend change ?
Today was a range expansion bar. A close above the mid point of today’s price bar should tell us that the minor trend has changed to UP. Thus, we require a close above 3020. This level will change over time.

Still in a trading range!
With all of the ups and downs, the Market remains in a trading range between 2800 to 3150. A move out of this range will provide a trend. The minor trend has changed to down for all indices / sectors. See Index watch, below.

I have long positions in the market. What should I do ?
If you are a swing trader, you were probably stopped out today. If you are a position trader you may like to keep the 2800 support level as your ‘make or break’ number. An intermediate down move starts below 2800. In any case, you do not need to keep long positions below this support.

Should I buy on dips ?
Yes. If the intermediate trend is UP then you may buy on a dip. Ideally, you buy above he high of the previous day with a stop below the lowest low of the last 3 days.

How do I determine the Intermediate trend ?
Many ways. One way is to use a moving average / linear regression with a period of 34 days. If the line is moving up, the trend is up. if the line is moving down, the trend is down.